Budget Deal Add-on Would Prevent Doubling of Milk Prices

A budget deal passed by the U.S. Senate early today would extend most U.S. farm support programs for a year and end concerns, at least until late this year, that the retail price of milk could double.

The extension, included at the request of Senate Minority Leader Mitch McConnell, a Kentucky Republican, rankled some farm-state lawmakers who had pushed last year for a five-year agriculture bill and wanted, at minimum, an overhaul of milk- support programs.

Instead, it potentially sets up a repeat one year from now of this week’s “dairy cliff,” when the expiration of farm law three months ago created a potential year-end price crisis as agricultural provisions dating to 1949 were set to take effect.

“It does guarantee current policy continues and milk prices will not go up,” Senator Debbie Stabenow, a Michigan Democrat and chairwoman of the Senate Agriculture Committee, said before the vote. “But if you’re a small dairy farmer, it doesn’t help you a bit.”

The farm provision was part of a deal between Vice President Joe Biden and Senate Republican leaders that would undo more than $600 billion in tax increases and spending cuts. The bill, passed 89-8, went to the House for consideration.

In a statement after the Senate action, Stabenow said that while she voted for the bill, McConnell’s extension “reforms nothing, provides no deficit reduction, and hurts many areas of our agriculture economy.” She said her committee would begin work on a farm bill after the new Congress convenes Jan. 3.

1949 Rules

The most recent farm law, enacted in 2008, expired Sept. 30 after attempts to pass a five-year proposal failed. In the absence of new farm policy, agricultural programs automatically return to rules enacted in 1949, the basis of all subsequent legislation.

Under those rules, the government bought supplies of a product until its price reached “parity” with the cost immediately before World War I. Adjusted for a century of inflation, the Agriculture Department’s milk-support price today would be $39 per hundred pounds, more than double the dairy futures price at the close of trading yesterday.

The effects of the transition to the 1949 rules have been delayed because of the growing seasons of different crops. Dairy production, a year-round business, is the first major commodity affected. In November, the U.S. Department of Agriculture put the price of a gallon of fresh whole milk at just under $3.54. Agriculture Secretary Tom Vilsack has said that the price per gallon could rise to $7 per gallon or more if the 1949 law is fully implemented.

‘Total Disaster’

“We just had to have an extension,” said Senator Pat Roberts of Kansas, the top Republican on the Senate Agriculture Committee, adding that any attempt to actually administer the 1949 law would be “just a total disaster.”

The Senate legislation passed today would continue direct payments to farmers, regardless of yields, that would have been eliminated under a five-year farm bill the Senate passed earlier this year, S. 3240, as well as under a House Agriculture Committee measure, H.R. 6083, that leaders in that chamber never brought up for a floor vote.

“It keeps the big subsidies we’ve been trying to end going, full bore, no cuts,” Stabenow said.

Separately, the House scheduled a vote for later today on a draft bill that would extend the milk support programs through Jan. 31. That bill is written narrowly, addressing only the dairy program and not the other parts of the expired farm policy law.

‘Cruel Joke’

It’s not clear that such an effort could pass in the House, particularly if the bill comes up under a fast-track procedure that would require a two-thirds vote for passage.

Leaders of the House and Senate agriculture committees said they backed a different one-year extension of the 2008 farm bill. Representative Collin Peterson of Minnesota, the top Democrat on the House Agriculture Committee, said he would oppose the short-term dairy-only bill if it’s brought to the floor, calling a one-month extension measure a “cruel joke” on American farmers.

The National Milk Producers Federation, a trade association that supported the dairy overhaul backed by the leaders of the two agriculture committees, released a statement today calling the Senate’s extension “little more than a New Year’s Day, hair-of-the-dog stab at temporarily putting off decisions that should have been made in 2012 about how to move farm policy forward, not offer more of the same.”

‘Bad Note’

“We’re starting 2013 on a bad note,” said Jerry Kozak, president and chief executive officer of the Arlington, Virginia-based group.

A Republican leadership aide said the House was keeping its options open to ensure that the milk issue is resolved by today.

“The House will honor its commitment to consider the Senate agreement if it is passed,” House Speaker John Boehner said in a statement yesterday on the budget deal as a whole. “Decisions about whether the House will seek to accept or promptly amend the measure will not be made until House members -- and the American people -- have been able to review the legislation.”